tag:blogger.com,1999:blog-2938311055760665357.post5264254855303372062..comments2024-03-27T03:49:12.592-07:00Comments on Ed Dolan's Econ Blog: Tax Reform as a Path to Growth-Friendly Fiscal ConsolidationEd Dolanhttp://www.blogger.com/profile/08757995049056872214noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-2938311055760665357.post-90528409106966686762011-07-07T21:06:36.625-07:002011-07-07T21:06:36.625-07:00Ed, I had a look at those OECD figures which show ...Ed, I had a look at those OECD figures which show various countries running deficits and surpluses for a decade or more. But the point I was trying to make was that it does not make sense for a country (as far as I can see) to run a surplus for SEVERAL decades. That’s why I included the word “century” above.<br /><br />I agree that a monetarily sovereign country COULD reduce its debt and monetary base to ultra low levels, and then produce extra monetary base as required by buying private sector bonds. But that’s an effective subsidy of the private sector firms whose bonds are bought, and I don’t approve of that. So a better alternative would be for the government / central bank machine could just run a deficit, funded by new or “printed” money.<br /><br />But what’s the point of cutting the monetary base to very low levels and then topping it up again? It seems to me much better to go for a monetary base which is more or less constant relative to GDP. Ignoring the national debt, that would mean a small annual deficit so as keep the monetary base expanding along with GDP. Plus as I mentioned above, some extra deficit is needed so as to take account of inflation – unless I’ve got something seriously wrong, which always a distinct possibility!Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-29695692125145195842011-07-04T07:02:54.271-07:002011-07-04T07:02:54.271-07:00Ralph--
Thanks for the comments. I agree that man...Ralph--<br /><br />Thanks for the comments. I agree that many countries have experienced growing debts, and the result is not always disaster in the short run. It takes years for a crisis to develop. However, I do not agree with you on all points.<br /><br />First, it is not true that no country's CAPB has been in balance or surplus. Check OECD data here: http://www.oecd.org/document/61/0,3343,en_2649_34573_2483901_1_1_1_1,00.html Look for the tab labeled "underlying structural balance," which is the OECD term for CAPB. Australia, Denmark, Luxembourg, and Sweden are examples of countries that have had continual surpluses. The US in the 1990s also had a positive CAPB.<br /><br />As for the debt and money, you are mixing up fiscal and monetary policy. There is nothing to prevent a country with a budget surplus from increasing its money stock through open market purchases. If the government's debt were to fall to zero so there were no government securities available for purchase, the central bank could purchase foreign or private securities instead.<br /><br />I agree that tax reform would bring benefits recession or no recession. It would be even more beneficial now when the economy is under stress.Ed Dolanhttps://www.blogger.com/profile/08757995049056872214noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-51987593869766114562011-07-04T00:16:13.125-07:002011-07-04T00:16:13.125-07:00Ed, Strikes me the first major mistake in the abov...Ed, Strikes me the first major mistake in the above article is your claim that “Sustainability requires that on average over the business cycle, the CAPB be kept near zero or slightly in surplus.” The reality is that no country’s CAPB over the last century or more has been in balance – let alone in surplus. That is, the reality is that national debts just keep growing and growing, both in nominal and real terms. But strangely enough, the sky has not fallen in. And the reasons are simple.<br /><br />First, expanding economies require an expanding money supply – monetary base in particular. That expanding monetary base can only come from one source: a deficit.<br /><br />Second, there is inflation. Assuming a country aims for and achieves the alleged optimum inflation rate of about 2%, its national debt and monetary base will shrink relative to GDP unless they are topped up. Again, that “topping up” can only come from a deficit. All in all, a significant deficit is required simply to keep the national debt and monetary base constant relative to GDP: roughly 2% of GDP (depending on your assumptions about economic growth, inflation and so on).<br /><br />Incidentally, I am not suggesting that national debts are desirable. I’d actually like to see them disposed of. But the reality is that most countries will probably continue with debts that are a significant proportion of GDP.<br /><br />As to tax reform, this has NOTHING specifically to do with the recession. Doubtless the US tax system needs improving and tidying up. And doubtless such a tidy up would bring benefits. But those improvements would bring benefits recession or no recession!<br /> <br />I did a post on my own blog entitled "Fast fiscal consolidation....".Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-13031375808704185432010-11-10T06:52:23.666-08:002010-11-10T06:52:23.666-08:00The preceding comment looks like spam, and I almos...The preceding comment looks like spam, and I almost deleted it, but it turns out actually to be rather clever. Worth a look.Ed Dolanhttps://www.blogger.com/profile/08757995049056872214noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-50145125663300926282010-11-09T21:57:55.784-08:002010-11-09T21:57:55.784-08:00Support the arts and tax reform. Donate today!Support the <a href="http://tiny.cc/arttaxes" rel="nofollow">arts and tax reform</a>. Donate today!Robert Birchhttps://www.blogger.com/profile/09193688394306632704noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-63608918662487034682010-11-05T16:29:54.251-07:002010-11-05T16:29:54.251-07:00Thanks, Karthik! I have no idea how that happened,...Thanks, Karthik! I have no idea how that happened, but it is back up now. Glad you like it!Ed Dolanhttps://www.blogger.com/profile/08757995049056872214noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-26761985847603917352010-11-05T14:24:03.272-07:002010-11-05T14:24:03.272-07:00Did you just delete a post titled "EU Leaders...Did you just delete a post titled "EU Leaders Struggle to Fix Fiscal Policy Rules"? Why? It is such a terrific post! Especially because it explains so well to grad students like me what exactly the problems of the EU are in layman terms.skarhttps://www.blogger.com/profile/01438206586553429725noreply@blogger.comtag:blogger.com,1999:blog-2938311055760665357.post-21791902264783859742010-10-29T09:06:21.615-07:002010-10-29T09:06:21.615-07:00Nice post thanks. I believe there is huge support ...Nice post thanks. I believe there is huge support for reforming our dysfunctional tax system (a la Ron Paul). I recently went through an audit. The IRS assessed before the 30 day response period was up. Paying attorneys to hold the IRS to the law was expensive.<br /><br />We need tax reform but not many seem to have the stones to take it on. I believe Mr. Obama is fearless enough but he has taken on alot already.<br /><br />A couple of questions maybe for the future. <br />A VAT seems an administrative burden compared to say a national sales tax no? <br />I am a definite proponent of taxing consumption either directly or indirectly but the anticipated increase in savings is contractionary isn't it?<br />With your plan can we repeal the individual income tax? Wouldn't that be a boon?Unknownhttps://www.blogger.com/profile/01409502060212256659noreply@blogger.com